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WHAT DEBTS ARE EXTINGUISHED BY MY BANKRUPTCY?

Fact Sheet

by Clare Corrigan17.09.19

After  you  are  discharged  from  bankruptcy  you  are  released  from most “provable” debts. You are not, however, released from any “non- provable” debts.


WHAT HAPPENS TO MY TAX DEBT?

A  provable  debt  in  the  context  of bankruptcy  is  a  debt  for  which  a creditor  can  claim  or  lodge  a proof of  debt  in  the  bankrupt  estate  and receive  a  proportionate  return of any  funds  realised in  the  estate by the  trustee.  Most  debts  for  which  a bankrupt  is  liable  will  be  provable, however,  there  are  a  few  broad categories  of  debt  that  are  not provable and some that are provable but not  extinguished  by  bankruptcy, see below.


WHAT ARE NOT PROVABLE DEBTS

The  main  broad  categories  of  debts that are non-provable and as a result not extinguished by bankruptcy are: 

  • Debts that were incurred after the date of bankruptcy commenced;
  • Court imposed fines;
  • Amounts payable under a  proceeds of crime order
  • HELP  debts  under  the  Higher  Education  Support  Act  2003  (Cth); and
  • Unliquidated  debts.  These  are typically  debts  that  are  subject  to  a  damages  claim  that  has  not  been fixed in amount or otherwise  agreed  as  to  value  prior  to  the  date of bankruptcy.


OTHER DEBTS THAT AREN’T  EXTINGUISHED

Some  debts  are  actually  provable  in the  bankruptcy  and  as  such  entitled  to  receive  a  proportionate  return  of  any available funds in the estate, but  are  not  extinguished  by bankruptcy.  As such the bankrupt will remain liable  for  the  balance  of  these  debts  after being discharged from bankruptcy.

  • Debts incurred by fraud;
  • Child support debts; and
  • Debts  relating  to  a  bond  or  to  certain  other  criminal  law penalties
  • Debts under a maintenance agreement or order;


WHAT HAPPENS TO MY TAX DEBT?

Tax debts that were incurred prior to the date of bankruptcy are provable and as such are extinguished by the bankruptcy. This  is  so  regardless  of  whether  or not  they  have been assessed  by  the Australian Taxation Office (“ATO”).

Liabilities that haven’t been assessed as at the date of bankruptcy are contingent liabilities  which  are  provable  in  the bankruptcy. Tax debts that relate to the period after the date of bankruptcy are not provable and not extinguished by bankruptcy. Bankruptcy will normally commence part way through a financial year in which  case the ATO can issue a tax assessment for the year to date. Once the bankrupt receives this separate assessment they should only be liable to the tax relating to the period after the date of bankruptcy.

Please note that any tax refunds that become due to a bankrupt during the term of the bankruptcy and post bankruptcy may be applied by the ATO against any debt that is due to the ATO for the period prior to bankruptcy.